The first estimate of fourth quarter 2016 real GDP growth was positive but weaker than expected, showing a 1.9 percent annualized growth rate. The components of GDP were mixed, highlighting the cross currents in the U.S. economy. The largest part of GDP, real consumer spending, increased at a moderate 2.5 percent annual rate. Consumer spending in the fourth quarter was supported by a surge in auto sales, boosting consumer spending on durable goods by 10.9 percent (annualized). But the largest part of consumer spending, on services, was held in check by a decline in the housing and utilities component, possibly weather-related. Growth in nonresidential fixed investment increased to a 2.4 percent annualized rate, supported by gains in equipment and intellectual property, but the structures component was still weak even though drilling rig counts have increased. Trade was a big drag, subtracting 1.7 percent from headline GDP growth in the fourth quarter as exports eased while imports grew at the strongest rate since the end of 2014. Inventories were a support to GDP growth, increasing by $48.7 billion ($2009) in the quarter, and boosting headline GDP growth by 1.0 percent. Federal spending declined at a 1.2 percent annualized rate as defense spending eased. Overall, this was a positive first estimate, thwarted by a surge in imports.

New orders for durable goods eased in December by 0.4 percent, weighed down by a large decline in new orders for defense aircraft and parts, often a very volatile component. Other categories were mixed. New orders for primary metals dipped by 0.9 percent while orders for fabricated metals eased by 0.8 percent. Communication equipment orders gained 4.9 percent. Commercial aircraft orders, another highly volatile component, jumped by 42.4 percent. Core orders, nondefense capital goods excluding aircraft, increased by 0.8 percent in December. Recent regional Federal Reserve manufacturing surveys have been positive. That trend continued with the Federal Reserve Bank of Kansas City reporting that their January survey showed a modest expansion of manufacturing activity.

Market Reaction: Equity markets opened with losses. The 10-year Treasury bond yield is down to 2.50 percent. NYMEX crude oil is down to $53.09/barrel. Natural gas futures are down to $3.30/mmbtu.

For a PDF version of this Comerica Economic Alert click here: GDP_01272017.